United States inflation in March hits Fed goal

US inflation finally hit the Federal Reserve's 2 percent target last month - for the first time in six years, the Department of Commerce said Monday.

Fed officials are widely expecting the inflation will go up this year and stabilize around the central bank's 2-percent target over the medium term, based on optimistic economic outlook.

The economics calendar will bring the monthly jobs report, which should show the USA economy continues to create jobs in the 10th year of the economic recovery.

"The Fed has been talking about today's inflation increase since last March", said Chris Low, chief economist at FTN Financial in NY.

The price index for personal consumption expenditure (PCE) in March rose 2 percent from a year ago, said the Commerce Department on Monday.

But as spending rose in March, so did inflation, which rose 1.9 percent year-over-over - the fastest pace since February 2017. Core inflation was up 1.9% in March from a year earlier.

What they arey saying?: "With the bulk of today's data coming in largely in line with expectations, there isn't much scope for a market reaction", said CIBC economist Katherine Judge.

The uptick in inflation came a day before the Federal Reserve two-day policy meeting that begins on Tuesday.

Rising price pressures are encouraging the USA central bank to press ahead.

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Economists expect the core PCE price index to hit 2.0 percent in May because of favorable base effects.

What happened: Inflation has been increasing steadily for months owing to the rising cost of oil, higher home prices, the tightest labor market in decades and a strong US and global economy. The data was included in last Friday's advance Q1 gross domestic product report.

In addition, regional factory surveys have shown increases in prices paid and received by manufacturers. Faster economic growth, driven by a US$1.5 trillion tax cut package and increased government spending, is also seen stoking inflation. But many analysts believe the Fed will raise rates again in June and will end up boosting them either three or four times this year.

Meanwhile, the U.S. personal income and spending rose 0.3 per cent and 0.4 per cent respectively in March, the same filing said. That's the biggest yearly gain in the core rate since April 2012.

When adjusted for inflation, consumer spending increased 0.4 per cent in March. The rebound in real consumer spending last month supports expectations that consumption was held back by temporary factors in the January-March period and will gain momentum in the second quarter.

Meanwhile, personal incomes rose a moderate 0.3 percent in March, matching the February gain. Savings fell to US$460.6 billion in March from US$483.1 billion in February.

Manufacturing data on Monday also offered an upbeat assessment of the economy. Outlays rose 0.4% last month to mark the first advance since the end of 2017.

But the housing market continues to be hobbled by an inventory squeeze that is restraining sales growth. This compared with a 1.6 percent increase in February.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. This article is strictly for informational purposes only.

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